UBS Penalizes Reps for Flipping

UBS PaineWebber will charge brokers two times gross commissions when clients sell newly issued stock within 40 trading days, provided the stock hasn't moved up or down by 10%, the firm announced July 27 when the policy was implemented. It's very disappointing, says a UBS PaineWebber rep in the West. But it won't affect me or a lot of other brokers here too much because it's hard to get new issues

UBS PaineWebber will charge brokers two times gross commissions when clients sell newly issued stock within 40 trading days, provided the stock hasn't moved up or down by 10%, the firm announced July 27 when the policy was implemented.

“It's very disappointing,” says a UBS PaineWebber rep in the West. “But it won't affect me or a lot of other brokers here too much because it's hard to get new issues anyway.” Despite that, “I think the penalty is excessive,” he says.

The reason for the policy is twofold, a UBS PaineWebber spokesperson says: 1) to capture more investment banking business, and 2) to discourage flipping and to ensure brokers put clients in stocks for the long term.

The firm has no intention of informing clients of the policy. “We don't want to discourage a client to do what they want to do under any circumstances,” the spokesperson says. “We don't want a client saying, ‘Oh, if I sell these shares, it'll hurt my good buddy Fred who's been my broker for 40 years.’”

That silence isn't sitting well with some reps. One UBS PaineWebber rep in the South says the firm should come clean. “As brokers, we take the heat for everything, including all the analyst calls.” More hidden conflicts don't help, he says.

A rep in the Northeast feels the firm has not been forthcoming with brokers, either. “They refuse to post the framework [for the policy] anywhere — it's not on our Web site,” he says. “Will the 10% price range be measured based on the opening or closing? And what if it goes up 10% and then down? What if the shares are delivered out?”

This rep is watching to see if the new policy will cause brokers to simply abandon syndicate.

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